The 26th annual “State of the Region” report examines the performance of the regional economy this decade, asks how changes to federal trade, immigration and spending policy have impacted economic growth, and discusses what 2026 may hold for Hampton Roads.
Inflation continues to weigh upon consumers and businesses. In August, the headline rate of inflation was 2.9% and the core rate, which excludes food and energy prices, was 3.1%. While inflation was lower than its most recent peak of 9% in 2022, the most recent data suggest that price pressures are building, in part because of higher tariffs. The Federal Reserve argues that the current uptick in prices is “transitory,” but experience has shown that even short-lived bouts of inflation are painful.
We project that defense spending in Hampton Roads will increase in 2025; however, this forecast is tempered with the observation that defense spending no longer has the same impact on economic growth that it did at the turn of the century. In the early 2000s, rapid increases in defense spending in Hampton Roads contributed to economic growth rates above 3%. This decade, even with direct defense spending in the region nearing $30 billion, the return in economic activity has been more muted.
Labor markets are slowing nationally, across Virginia, and in Hampton Roads. The number of residents at work or looking for work in the region declined in the second half of 2025. Unemployment reached 3.7% in August and continued unemployment claims were almost 50% higher in August 2025 than August 2024. The number of jobs across Hampton Roads declined in the first eight months of 2025, with the most significant losses in manufacturing, federal employment and retail trade.
Higher tariffs on imported goods and retaliatory tariffs by other countries in response have negatively impacted traffic through the Port of Virginia. The dollar value of goods flowing through the port was lower in each of the first seven months of 2025 when compared to the same months in 2024. This is not unique to the Port of Virginia. Across the United States, import volumes declined in the second quarter of 2025. Fewer goods entering the country will deplete inventories and increase price pressures in the second half of the year and into 2026.
The U.S. International Trade Administration defines a tariff as an import tax levied by a government on the value, inclusive of freight and insurance, on imported products. In August, the U.S. government collected $29.5 billion in net customs duties, almost four times what it collected in August 2024. The Office of Management and Budget recently estimated that the U.S. government would collect almost $1.8 trillion in tariff revenue from 2026 to 2030. If this happens, it would represent the largest tax increase on American consumers and businesses since World War II.
Changes to immigration policy and enforcement have reduced international arrivals to the United States. International arrivals (those who hold a valid visa for entry) were lower in July 2025 than July 2024, with declines being driven by a fall in traffic from Canada and Mexico. In August, there were almost 70,000 fewer international students arriving to study in the United States than August 2024. International students typically pay out-of-state tuition, subsidizing the tuition of domestic students.
Over the past decade, residents of Hampton Roads have been leaving in greater numbers than arriving from other domestic locations. Net-negative domestic migration has been partially offset by international migration. Without international migration, Hampton Roads would have lost population this decade. Using data from the Internal Revenue Service, we found that higher-income taxpayers were leaving Hampton Roads to other locations in the United States.
We project that the level of economic activity in Hampton Roads will increase for the fifth consecutive year in 2025. Accounting for inflation, we estimate the regional economy grew by 2.4% in 2024. Growth, however, will slow to 1.6% in 2025. While forecasting is an exercise in uncertainty, we project that growth may slow even further in 2026.
As labor markets soften, international trade declines and the federal government sheds civilian jobs, the challenge for regional leaders is clear: Build upon recent economic successes to diversify the region’s economic base or surrender our collective fates to decision makers in Richmond and Washington, D.C.
The good news is we have taken steps regionally to improve collaboration. Now, in the face of increasing adversity, is the time to lean into these efforts to improve the lives of all those who call Hampton Roads home.
Robert M. McNab is director of Old Dominion University’s Dragas Center for Economic Analysis and Policy and Chair of the Department of Economics. The 2025 State of the Region Report is available online at ceapodu.com.